Article written by Charlotte Warren, Solicitor, Private Client
A trustee plays a critical role in the administration of a trust estate. Their responsibilities encompass a wide range of tasks including decision-making, asset management, ensuring compliance with legal requirements and protecting the interests of the beneficiaries.
What is a trustee?
A trustee is an individual or entity appointed to hold and manage assets on behalf of beneficiaries in accordance with the terms of the trust deed. Trusts may be established for various purposes such as asset management or protection for minors or individuals lacking capacity, managing retirement funds or addressing situations like bankruptcy. A trust may also be set up to distribute income and capital to beneficiaries over time, according to specific guidelines.
In their role, trustees have a fiduciary duty, meaning they are legally bound to act in the best interests of the beneficiaries. This obligation extends to all decisions made concerning the trust estate, requiring the trustee to prioritise the beneficiaries’ welfare above all else.
What are a trustee’s duties?
A Trustee’s duties are many and varied.
Making Decisions
Trustees must make informed decisions regarding the acquisition, management and disposal of trust assets. This includes ensuring that all actions align with the trust’s purpose and are carried out in a manner that benefits the beneficiaries. Trustees must act with reasonable care, skill and diligence in managing the trust assets.
The Trustee Act 2000 expanded the scope of trustees’ investment powers, while also safeguarding beneficiaries’ interests by setting limits on how these powers can be exercised. Trustees are required to make decisions unanimously unless otherwise specified in the trust deed.
Managing assets
Trustees are responsible for overseeing the trust’s assets, whether those assets are financial, property or even non-traditional assets (e.g. cryptocurrency). They must ensure that these assets are managed prudently and in a way that benefits the beneficiaries.
The Trustee Act 2000 also grants trustees the ability to acquire property, including both freehold and leasehold land in the UK, thus providing them with more flexibility in managing trust assets. For discretionary trusts, trustees have even more freedom in making decisions, provided provided those decisions are for the benefit of the beneficiaries.
Trustees can engage third-party professionals—such as accountants, investment managers, or legal experts—to assist in managing the trust’s assets effectively.
Act in the best interests of the beneficiaries
Trustees must prioritise the interests of the beneficiaries above all other considerations. This duty requires impartiality, meaning no beneficiary should receive preferential treatment over another. Additionally, trustees must avoid any conflicts of interest that could arise from personal interests or relationships.
Follow the rules of the trust
The trust deed which creates the trust sets out the powers of the trustees and the rules designed to benefit the beneficiaries. Trustees cannot ignore those rules when making decisions and must always follow those rules even if a beneficiary disagrees with them.
In the case of discretionary trusts, the extent of the trustee’s discretion is clearly defined within the trust document. Trustees must be careful not to exceed the boundaries set by the trust deed or violate its terms.
Keeping accounts and paying taxes
Trustees are required to submit tax returns to HM Revenue & Customs (HMRC) and must ensure compliance with applicable tax laws. Professional advisors, such as accountants, can assist trustees in managing tax-related matters and preparing the necessary documentation.
Trustees are required to manage the trust’s finances, which includes keeping accurate records, preparing annual accounts and fulfilling any tax obligations. Trusts are subject to various taxes, such as Inheritance Tax, Capital Gains Tax and Income Tax, and trustees are responsible for ensuring that these taxes are paid on time.
Complying with the common law duty of care
All trustees must comply with the common law duty of care. That means they must take the precautions that an ordinary prudent person of business would take in managing similar affairs of their own.
Think carefully before accepting a trustee appointment
Serving as a trustee is a significant responsibility that can require a considerable time commitment and may involve difficult decision-making, particularly when dealing with complex assets or contentious family dynamics. Trustees must be prepared to handle potential conflicts of interest, manage competing interests and ensure their actions align with both the legal obligations and the trust’s goals.
Before accepting the role of trustee, it is essential to seek professional advice to fully understand the duties involved. Trustees should carefully review the terms of the trust, to ensure they familiarise themselves with what will be required of them as trustee.
Grant Saw can provide expert guidance on all aspects of acting as a trustee, ensuring that trustees understand their responsibilities and make informed decisions in line with legal requirements and the trust’s objectives. Please feel free to email me or call us on 020 8858 6971 for more information.